I am constantly being asked by people about the amount of money they have to invest in order to achieve a stable dividend income stream. I am primarily discussing low current dividend, higher dividend growth stocks in my blog, which have the potential for at least market average stock price appreciation.
So how much money do you need to invest, in order to generate the amount of dividend income that will set you free from the 9 to 5 job? Well, a good starting point would be first to track analyze your expenses for the past twelve months.Unless you live in Canada, you might have to purchase your own health insurance, which might have been previously subsidized by your employer.
Another additional expense that you might want to consider will be your hobby, assuming that you will retire and do what you really like to do. Some people might like to spend their time fishing, while others might like traveling. Try brainstorming with your spouse about any additional expenses that you might think about, and then add them to your income requirements.Assuming that you won’t be working a full-time job anymore, you will need to subtract from your income requirements the amount of money that you currently spend on transportation to your job, as well as other work related activities like buying suits, restaurant meals, professional dues, courses etc. You should also subtract the amount of money you are currently saving for retirement through a 401K, IRA or in a simple savings/brokerage account. I would also recommend that it would be a good idea to cut back on certain fixed and recurring expenses such as your mortgage payment or student loans before you retire. And last but not least, the taxes that you will be paying on your dividend income will be much lower than the income taxes that you are currently paying.
After you have determined exactly how much you really need to live comfortably in retirement now comes the fun part – investing in the right dividend stocks for you.Let’s say to you have determined that you need $20,000/year in retirement before taxes. You have identified several diversified income producing portfolios yielding from 1% to 10%. So how much do you need to save? It all depends based off the dividend yield (I am assuming that the dividend growth will at least equal inflation, so that inflation would not decrease your standard of living).
Yield Amount to invest
4% $ 500,000.00
6% $ 333,333.33
8% $ 250,000.00
10% $ 200,000.00
Based off these calculations you would need to save and invest anywhere from $200,000 to $2,000,000. It is easy to find stocks which yield 2%-4%. Getting to stocks that pay 6% and even 8% consistently, who also increase their dividend payments is getting even harder. Finding enough high-yielding stocks in order to construct a stable dividend income producing portfolio, whose income increases each year in order to compensate for inflation, is a pretty difficult task in today’s environment. You might get there however, by buying strong dividend growers whose yield is at least equal to the yield on the S&P 500.
- The next bubble in the making.
- Dividend Champions Watchlist
- The 20 Highest Yielding Dividend Aristocrats
- The case for dividend investing in retirement
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